Euro falls ahead of today’s European Central Bank press conference at 13:30
21/Apr/2016 • Currency Updates•
The Euro declined against both the US Dollar and Sterling on Wednesday afternoon, with investors concerned that today’s European Central Bank monetary policy meeting could send the single currency lower.
Expectations for this week’s ECB meeting are relatively low given the significant easing measures launched at the most recent meeting in March.
One-week implied volatility in the Euro, a gauge of how sharp currency movements are expected to be over the coming week, is at a lower level than for any of the past seven meetings. This suggests traders are not expecting anything drastic from ECB President Mario Draghi today.
We expect policy to remain unchanged. Eurozone policymakers are likely to wait and see the full effect of the recent additional stimulus on both growth and inflation before committing to more.
However, there remains a good chance that Draghi could leave the door open to further easing measures in the future. We think that the ECB’s comments that policy had reached its limits were taken too literally by the markets following the March meeting and believe that the recent Euro appreciation has been excessive.
Any comments on the strength of the Euro, which has rallied by over 7% since the ECB’s December meeting, could be seen as dovish by the market and would likely weigh on the single currency today. This anticipation is likely to provide a short window of opportunity for those companies awaiting to pay EUR invoices against GBP, with many likely able to achieve close to 1.27, a level not seen for over a month now.
Away from the ECB, Governor of the Bank of England Mark Carney will be speaking in New York this afternoon, although we don’t anticipate any meaningful comments on monetary policy.
Major currencies in detail:
Despite relatively poor labour figures, the Pound rose by 0.1% versus the Greenback on Wednesday.
Average wage growth, including bonuses, slowed in the three months to February, according to the Office for National Statistics yesterday. Earnings growth decelerated to 1.8% from 2.1%, suggesting that the UK jobs market could be cooling.
The unemployment rate remained unchanged at 5.1%, although increased by 21,000 in absolute terms.
Bank of England rate setter and renown hawkish member of the Monetary Policy Committee Ian McCafferty yesterday suggested that he could soon be voting for a rate hike again, although unsurprisingly failed to offer a firm date. In a speech in London, McCafferty claimed that low inflation is having a ‘material impact’ on wage growth and that UK economic growth could soften through the summer as a result of the EU referendum.
Retail sales figures this morning are expected to increase, which could provide a boost for Sterling today.
The Euro fell by 0.3% against the US Dollar and 0.4% versus the Pound yesterday ahead of today’s ECB meeting.
German Finance Minister Sigmar Gabriel spoke in Berlin on Wednesday. Gabriel called for Eurozone governments to aid the ECB’s efforts to stimulate the struggling Euro-area economy, suggesting that austerity was at the root of the economic woes that have seen inflation fall and growth stagnate.
Meanwhile, the German government confirmed its economic growth forecast, with Europe’s largest economy expected to grow by a fairly meagre 1.7% this year.
All attention will be on the ECB today. The interest rate announcement at 12:45 UK time will be followed by Draghi’s press conference at 13:30.
Concerns of a weaker Euro following the ECB meeting sent the US Dollar index 0.2% higher yesterday.
A stabilisation in global stock and commodity markets continues to increase risk appetite in the currency markets, with the US Dollar rallying strongly yesterday against the safe-haven Japanese Yen and Swiss Franc.
The US Dollar was buoyed further after slightly more encouraging housing data was released. Existing home sales rebounded more than expected in March, despite signs that the overall US economy slowed in the first quarter of the year. Sales increased by 5.1% to 5.33 million units, well above expectations, and its largest increase in three months.
With the US Dollar likely to be driven by events in the Eurozone today, economic announcements in the US, including jobless claims and the Philly Fed manufacturing survey, will take a back seat.
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